Opinion
NO. 2017-CA-000311-MR
05-18-2018
PNC BANK, NATIONAL ASSOCIATION APPELLANT v. CHRISTY FREY; WILLIAM FREY A/K/A WILLIAM J. FREY; AND HOUSEHOLD FINANCE CORPORATION II APPELLEES
BRIEF FOR APPELLANT Sarah S. Mattingly Jeremy S. Bogers Louisville, Kentucky ORAL ARGUMENT FOR APPELLANT: Sarah S. Mattingly Louisville, Kentucky BRIEF AND ORAL ARGUMENT FOR APPELLEE: Mark E. Edison Shepherdsville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM BULLITT CIRCUIT COURT
HONORABLE RODNEY D. BURRESS, JUDGE
ACTION NO. 14-CI-00439 OPINION
AFFIRMING
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BEFORE: DIXON, JOHNSON AND TAYLOR, JUDGES. DIXON, JUDGE: Appellant, PNC Bank, appeals from a judgment of the Bullitt Circuit Court, following a bench trial that dismissed a foreclosure action against Appellees, Christy and William Frey. For the reasons set forth herein, we affirm.
On July 3, 2003, the Freys executed a promissory note in the amount of $95,000 with an interest rate of 6.4250%. The note was secured by a mortgage executed on the same date for property located in Louisville, Kentucky. PNC Bank is the holder of both the note and the mortgage. Near the end of 2011, the Freys signed a loan modification agreement that added a past due balance to the loan's principal balance and extended the maturity date of the note from August 1, 2033 to November 1, 2051. Under the terms of the modification agreement, the Freys' first payment was due on December 1, 2011.
An October 22, 2014, letter from PNC Bank's Customer Service Department to the Freys details the events leading up to the filing of the foreclosure action. According to PNC Bank, the Freys' first payment under the loan modification was not received until January 3, 2012. As a result, PNC Bank deemed all subsequent payments past due. In October 2012, PNC Bank sent the Freys a letter stating that they were $2,253.19 in default, that amount representing the September, October and November 2012 payments, and gave them until November 15th to cure the deficiency. Thereafter, on November 8, 2012, Christy Frey paid the monthly $750 payment. Because the amount was insufficient to cure the deficiency, the payment was returned to the Freys on November 20th. Then, on December 3, 2012, the Freys made a payment of $1,500, which PNC Bank applied to the September and October payments. This practice continued for the next year, with PNC Bank sometimes rejecting the mortgage payment and issuing a check back to the Freys and other times accepting the payment and applying it to the loan balance. Although the loan records introduced by PNC Bank are confusing at very best, the payment receipts submitted by the Freys indicate that they made a payment most months, occasionally making double payments if a month or two had been missed. It is undisputed that the Freys did not cash any checks issued to them by PNC Bank, and that the bank remained in possession of their payment funds.
The letter is attached to the Freys' motion for summary judgment and is one of the documents at issue in this appeal.
The checks issued by PNC Bank to the Freys were valid for 90 days. As of the time of trial apparently all checks and reissued checks were no longer negotiable.
On May 9, 2014, PNC Bank filed a foreclosure action in the Bullitt Circuit Court seeking to enforce its rights under the loan documents. PNC Bank sought a judgment in the amount of $87,990.61 together with interest at the rate of 6.4250% per year from March 1, 2013. The Freys answered the complaint, denying that they had failed to make the required payments. Following discovery, both PNC Bank and the Freys filed cross-motions for summary judgment. The trial court denied both motions, finding that there existed "genuine issues of material fact as to the payments made by Defendants and the proper application of said payments."
A bench trial was held on November 4, 2016. Therein, PNC Bank's Default Litigation Specialist Senior, Dorothy Thomas, testified that the Freys' mortgage had a current due date of November 1, 2013, and that they owed $27,000.16 in delinquent mortgage payments. Thomas admitted that the Freys had continued to make monthly payments, even after the foreclosure action was filed. She explained that because they were in arrears, PNC Bank, rather than processing the payments and applying the funds to the outstanding balance, chose to deposit them into an escheat account and issue checks back to the Freys returning the payment funds. Thomas testified that at the time the foreclosure action was filed, the due date on the Freys' mortgage was April 1, 2013. However, on March 21, 2016, the payments owed for April-October 2013 were applied to the loan from the escheat account. Thomas explained that the reason the payments were applied was because on February 1, 2016, the Freys signed a Mortgage Trial Period Plan that provided if they made payments of $735.36 on March 1, 2016, April 1, 2016, and May 1, 2016, they would be considered for a mortgage modification plan. Thomas stated that because the Freys complied with the trial plan, PNC Bank applied those payments, along with additional funds from the escheat account to the balance, bringing the current due date to November 1, 2013. As proof of the Frey's default, PNC Bank introduced ten exhibits including the note, the mortgage, the 2011 loan modification agreement, the Freys' Loan History, and demand letters sent to them.
Thomas testified that under the terms of the loan, PNC Bank had the right to accept or reject a payment once the loan was in arrears. However, she also stated that the only reason payments were accepted and applied to the Freys' account was because of the February 2016 Trial Period Plan. That testimony directly conflicts with the October 22, 2014 letter which details several months in 2012-2013 when a payment was accepted and applied to the balance.
Next, Christy Frey testified that they had not defaulted on their payments since the December 2011 mortgage modification agreement. She stated that she made the payments in person every month at the Hillview PNC Branch and that the branch never refused to accept a payment. The Freys introduced thirty-four checks evidencing PNC Bank's return of funds that the Freys had paid that were not applied to the mortgage but instead placed into the escheat account. Christy Frey testified that they had never cashed any of the checks and that PNC Bank was in possession of all the mortgage funds.
The trial court thereafter rendered an opinion on January 20, 2017, dismissing PNC Bank's action. Therein, the trial court noted,
PNC Bank introduced a Loan History for the Defendant's account as Plaintiff's Exhibit Number (6). ('The Loan History'). The Loan History is organized chronologically from most to least recent account activity. While Plaintiff attempted to explain how to interpret this Loan History in their examination of Dot Thomas, the Court notes the testimony was unclear. Thomas' testimony explained how to interpret the first ten pages of the Loan History, which is formatted differently that [sic] the remaining 2011-2014 activity. Interpreting the loan history is made more difficult
because the portion of this Loan History reflecting the Frey's 2011-2013 loan activity is cut off so month and day of the due dates are not visible. In light of the unclear testimony of Thomas, the dates on the Loan History are essential to attempting to understand PNC Bank's claim. However, the second column is labeled "proc date." This column contains the month and date specific payments were processed, but not the year. By comparing the dates and amounts on the Loan History to the more legible 'Customer Account Activity Statement' ('Customer Statement') previously attached to the Freys' Motion for Summary Judgment, this court is able to verify the dates of the alleged account activity.
The Record also contains a series of letters from PNC Bank to the Freys which shed light upon the facts of this matter. A letter from PNC Mortgage Customer Service Department dated October 22, 2014 informed the Defendants:
"The first payment on the modified loan was due on December 1, 2011 but we did not receive it until January 3, 2011. All subsequent payments were past due."
The evidence in the Record refutes PNC Bank's October 22, 2014 assertion that the Defendants failed to make the first payment on the modified loan prior to the December 1, 2011 due date. The Loan History indicates three payments were made between the entry of the loan modification and that date. First, a payment receipt from the Hillview Kroger PNC Branch shows Frey made a payment of $134.85 on November 28, 2011. This payment is further corroborated by the Loan History tendered by the Plaintiff, which indicates PNC Bank processed the payment on November 30, 2011. Second, the Loan history appears to indicate PNC Bank processed a payment of $938.81 on December 7, 2011. (The Court notes this portion is unclear.) Finally, a third payment of $724.29 was processed on December 16, 2011.
Based upon this Court's review of the record, the above-quoted statement made in the October 22, 2014 letter concerning the Freys [sic] December 2011 payment cannot be substantiated. Therefore, the Court will not assess the subsequent payments as being one month past due.
The trial court then compared the Loan History introduced by PNC Bank with the Customer Statement and payment receipts that the Freys had attached to the motion for summary judgment, and detailed what it thought was the Freys' payment history through 2016. The trial court thereafter concluded:
The Freys also filed of record payment receipts on several occasions after the motion for summary judgment. --------
As the Plaintiff in this case, PNC Bank bears the burden of proving, by a preponderance of the evidence that Christy and William Frey defaulted on their mortgage loan secured by the real property located at 177 Toy Court, Louisville, Kentucky 40229. The bottom line is this: the trial evidence submitted by PNC Bank and the testimony of Dot Thomas was insufficient to meet this burden. Therefore, the Court finds dismissal of the PNC Banks' [sic] claim against the Freys is proper.PNC Bank thereafter appealed to this Court.
On appeal, PNC Bank argues that the trial court erred in basing its decision on documents not introduced at trial or otherwise properly authenticated and admitted into evidence. Specifically, PNC Bank challenges the trial court's reliance upon documents attached to the Freys' motion for summary judgment, (including the Customer Statement), as well a series of letters from PNC to the Freys (including the January 22nd letter), and numerous payment receipts issued by the Hillview Kroger PNC branch. PNC Bank contends that because the Freys did not specifically introduce said documents during the trial, the trial court erred by undertaking after trial "an independent investigation of the facts" prior to rendering its opinion. PNC Bank further contends that the trial court misinterpreted the financial information in concluding that the Freys were not in default of the mortgage loan.
As this is an appeal from a bench trial, our standard of review is governed by CR 52.01. Under CR 52.01, the trial court is required to make specific findings of fact and state separately its conclusions of law relied upon to render the court's judgment. Further, those "[f]indings of fact, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." CR 52.01. A trial court's decision is not clearly erroneous if it is supported by substantial evidence. Owens-Corning Fiberglas Corp. v. Golightly, 976 S.W.2d 409, 414 (Ky. 1998). "Substantial evidence" is "evidence of substance and relevant consequence having the fitness to induce conviction in the minds of reasonable [people]." Id. Furthermore, parties have a right to have matters before trial courts "adjudicated from the evidence of record[.]" See Skinner v. Skinner, 249 S.W.3d 196, 201 (Ky. App. 2008). A trial court's reliance upon evidence not in the record constitutes clear error. Id.
However, while deferential to the lower court's factual findings, appellate review of legal determinations and conclusions from a bench trial is de novo. Sawyers v. Beller, 384 S.W.3d 107, 110 (Ky. 2012).
PNC Bank cites to Commonwealth v. Howlett, 328 S.W.3d 191 (Ky. 2010) and S.R. v. J.N., 307 S.W.3d 631 (Ky. App. 2010), in arguing that the trial court is only entitled to rely on that evidence presented at trial and cannot "make a private investigation of a matter pending before the court and then base his decision upon information obtained thereby." Unlike the instant matter, however, the cases cited by PNC all involve outside evidence or information obtained by the trial court that was not made a part of the record in any manner. Herein, the documents relied upon by the trial court were technically a part of the record, albeit not authenticated as they would have been had they been admitted at trial.
Clearly, had the trial court granted summary judgment for the Freys, it could have cited to and relied upon the documents attached to their motion. In Ford v. Faller, 439 S.W.3d 173, 182 (Ky. App. 2014), a panel of this Court noted,
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56.03. "[O]n a motion
for summary judgment the court is entitled to consider any evidentiary matter that has been presented to the court at any stage of the proceedings in the case." Collins v. Duff, 283 S.W.2d 179, 183 (Ky. 1955). Additionally, "an exhibit which is evidentiary in nature . . . may be properly regarded the same as would be an uncontradicted supporting affidavit." Daniel v. Turner, 320 S.W.2d 135, 137 (Ky. 1959).With that being said, in reviewing a motion for summary judgment, a trial court is "not concerned with the competency of evidence[,]" but only is "examining [the] record for the sole purpose of determining whether an issue of material fact exists." Conley v. Hall, 395 S.W.2d 575, 578 (Ky. 1965).
The Freys contend that pursuant to CR 75.07, all of the pleadings, memorandum in support of motions, and documents attached thereto are necessarily part of the record and can be considered by the trial court in rendering its decision as well as by this Court on appellate review. In Springfield Coal Company v. Meade, 430 S.W.2d 652, 653 (Ky. 1968), Kentucky's then-highest Court discussed whether depositions not introduced at trial are part of the record on appeal:
CR 75.01 directs a party taking an appeal to designate three things: (1) the record, (2) the proceedings, and (3) the evidence. A definition of these component parts of a record on appeal may be found in Middleton v. Hartford Accident & Indemnity Co., 5 Cir., 119 F.2d 721. Depositions, though filed, are not technically a part of the clerk's record. Williams v. Norris, 12 Wheat. 117, 25 U.S. 117, 6 L.Ed. 571; Tappan v. Beardsley, 10 Wall. 427, 77 U.S. 427, 19 L.Ed. 974. Depositions used at a
trial or hearing obviously fall in the category of 'evidence'. Discovery depositions not so used play no part in the proceedings and could play no part on appeal. It may be noted that CR 75.07(3), which directs the manner of preparation of the record on appeal by the clerk, refers to 'a deposition used in the trial'. The import of that language is that no one would designate a nonused deposition.Similarly, in Lucas v. Lucas, 720 S.W.2d 352, 353-54 (Ky. App. 1986), a panel of this Court held:
The intent of CR 75.01 and CR 75.07(1) is that the record on appeal contain the evidence available to the trier of fact. A party cannot utilize CR 75.01 to include evidence in the record on appeal if that evidence was not first placed before the fact-finder during trial. Therefore, depositions not read into evidence at a jury trial, or not introduced into evidence at a bench trial, should not be included in the record on appeal. Any reading of Richman v. First Security National Bank and Trust Co., Ky. App., 652 S.W.2d 671 (1983), to the contrary is a misinterpretation of that case. Richman stands for the proposition that a designation of evidence is not necessary in an appeal from a summary judgment where no evidentiary hearing was held and the summary judgment was based upon pleadings, depositions, answers to interrogatories, stipulations and admissions on file.
Our review of the record herein indicates that essentially the same information was contained in the documents produced by PNC Bank and those attached to the Freys' motion for summary judgment. In fact, although the trial court utilized the Customer Statement produced by the Freys in reaching his payment calculations, the same financial information was contained in the Loan History produced by PNC Bank, albeit it was much more difficult to decipher. The trial court merely used the Customer Statement to interpret the Loan History.
PNC Bank also contends that the trial court misinterpreted the financial information and that its calculations are erroneous. Having reviewed the calculations, it is unclear whether the trial court properly calculated the amount of money the Freys had paid. As the trial court aptly noted, PNC Bank's Loan History is almost impossible to interpret. The information is formatted differently for the years 2011-2013 than for more current years, and the columns are partially cut off on one side of the page. As a result, it is unclear how PNC Bank allocated the payments that it did accept. There was no testimony as to how much money PNC Bank held in its escheat account consisting of payments paid by the Freys but not credited to their account. Given that PNC Bank failed to offer testimony as to how to interpret the information it did introduce this Court certainly cannot determine whether the Freys were current on their payments as they maintained, ahead on their payments as the trial court found, or in default as asserted by PNC. While it was authorized to do so under the terms of the loan, there is no question that PNC Bank's practice of intermittently accepting and rejecting the Freys' payments makes it quite difficult to ascertain when or even if they actually defaulted on the loan.
Ultimately, PNC Bank bore the burden of proving by a preponderance of the evidence that the Freys defaulted on their loan. We conclude that even if review is limited to only the evidence and testimony introduced at trial, the trial court properly found that PNC Bank failed to meet its burden. The Loan History, Thomas' testimony, and the 34 checks issued by PNC Bank to the Freys are simply not reconcilable and do not conclusively establish that the Freys defaulted on their loan. Accordingly, dismissal of the foreclosure action was appropriate.
The judgment of the Bullitt Circuit Court is affirmed.
TAYLOR, JUDGE, CONCURS.
JOHNSON, JUDGE, CONCURS IN RESULT AND FILES A SEPARATE CONCURRING OPINION.
JOHNSON, JUDGE, CONCURRING: I concur with the majority opinion, however I want to address the issue raised by PNC both in their brief and at oral argument concerning the circuit court's references to evidence outside the trial record.
Specifically, the trial court in its Opinion of January 26, 2017, referred to "Customer Account Activity Statements; letters from PNC to the Freys; and payment receipts of the Freys." While these documents are in the record, they were not introduced into evidence by either party at the bench trial.
While PNC may be distressed by the court referring to these documents in its final order, it is clear that such references are at the most harmless errors. In reviewing the court's order, in each case, the court rested its decision on either the Loan History, which was evidence introduced into the record, or upon testimony at the bench trial. The court did reference the 'Customer Account Activity Statement,' but it only used the statement as a comparison to the actual Loan History. When discussing the letters from PNC to the Freys, the court again relied upon the Loan History documents. The court noted that there was no payment receipt or loan history for the Freys March 2013 payment. However, the court found that based upon all the evidence of record PNC failed to meet their burden of establishing that the Freys were delinquent in March 2013. I find no error in the court's ruling which would require a reversal of the court's opinion. BRIEF FOR APPELLANT Sarah S. Mattingly
Jeremy S. Bogers
Louisville, Kentucky ORAL ARGUMENT FOR
APPELLANT: Sarah S. Mattingly
Louisville, Kentucky BRIEF AND ORAL ARGUMENT
FOR APPELLEE: Mark E. Edison
Shepherdsville, Kentucky